Secreted proteins direct the initiation, growth and patterning of the developing skeletal elements. Indian hedgehog (Ihh) is an important example of such a factor. Like many inductive signals, Ihh physically interacts with extracellular matrix components in addition to receptors on it's target cells. Such extracellular interactions can sequester the signals, influence morphogen movement across tissues and/or mediate ligand-receptor interactions. Hedgehog proteins have previously been shown to specifically interact with Heparin Sulfate Proteoglycans (HSPGs). While this has not been directly explored for Ihh in particular, mutations in two genes involved in HSPG chain elongation, Ext1 and Ext2, cause skeletal dysplasias known as exotoses and Ihh signaling is compromised in Ext1 mutants. To directly address the importance of HSPG interacting for Ihh function, we will construct an allelle of Ihh that lacks the puttaive HSPG-binding Cardin- Weintraub (C-W) domain. Ihh acts on skeletal development through direct effects on prolioferating chondrocytes, and also through indirect effects via the perchondrium a membrous sheath of flattened cells encapsulating the skeletal aniagen. Indeed, the perchondrium is known to play important roles in a number of aspects of regulating the differentiation of subjacent skeletal elements. We recently identified a series of markers indicating a surprising level of complexity in the organization of this tissue. We will construct transgenic mice in which cre-recombinase is placed under the transcriptional control of promoters driving expression in different perichondrial domains. These will be used to fate-map the cells in different layers of the perichondrium and to test the roles of skeletal regulators in this tissue, including Ihh and Hox genes.